Blockchain PoC For Repo Settlement Completed By Commerzbank And Deutsche Boerse

News | March 7, 2019 By:

German banking giant Commerzbank and Deutsche Boerse, the operator of the Frankfurt Stock Exchange, have successfully executed legally binding settlement of a repo transaction using blockchain technology.

The repo transaction is based on a public note of KfW Bank Group amounting to EUR 10 million ($11.3M USD) and a seven-day term with a negative interest rate of -0.5%. The transaction, which was based on delivery versus payment, was executed as part of a joint proof of concept examining the possible use of blockchain technology in securities settlement.

For the transaction, the two parties generated digital tokens for both commercial bank money (cash tokens) and securities (securities tokens). A blockchain platform, developed jointly by the partners, was then used to execute the simultaneous swap of the tokens as a legally binding transaction. Commerzbank’s research and development unit, acted as the blockchain platform operator.

“Distributed ledger technology creates an immediate and simultaneous transfer of assets so that the transaction can be settled in real time,” Deutsche Boerse said. “The key benefits of this shortened execution time are the reduced counterparty risk and the corresponding reduction of capital costs. This technology also permits the direct and transparent involvement of regulators and oversight authorities.”

Michael F. Spitz, CEO of main incubator, the R&D unit of the Commerzbank Group, said that through the systematic development of blockchain technology, DLT is increasingly gaining in importance for a growing market.

“In past pilots we have focused on new issue projects, with the transaction between Deutsche Boerse and Commerzbank we were now for the first time able to convert existing securities into digital tokens,” said Spitz. “We are delighted to support the transaction as a platform operator and, together with Deutsche Boerse, to have reached such an important milestone in the adaptation of this future technology for the capital market.”

According to the firms, the result of the pilot transaction can serve as the basis for further developments. They are planning to create underlying legal conditions which are a requirement for a binding assessment of contractual relationships.

“The development of different blockchain applications and setting new standards is a high priority for Deutsche Boerse Group, and we will push ahead with this process in close exchange with partners, supervisory authorities and central banks,” stated Jens Hachmeister, Head of DLT, Crypto Assets and New Market Structures at Deutsche Boerse.